The auction held last Wednesday, March 14th, by the Regional Greenhouse Gas Initiative (RGGI) was the fifteenth held so far -- making it seem far from novel -- but as we highlighted in January, this first auction of RGGI's second compliance period could provide interesting insight into the future of the program.
According to the market monitor report, 21.5 million (62%) of the 34.8 million allowances offered for sale by the 9-state group sold at last week's auction, with the 20 participating bidders paying $1.93 (the new floor price). Although two of the entities who submitted bids for allowances were not compliance entities, 99% of the allowances purchased were sold to the generators regulated under RGGI or their corporate affiliates. Participation in this quarter's auction was slightly lower than December's auction, which featured 38 bidders, but much more robust than the September 2011 auction, which set a record low, with only 18% of the allowances offered for sale being purchased. The next auction, held in June, will bring the total cumulative proceeds since the beginning of RGGI to over a billion dollars, as the total currently stands at $993.7 million.
The first compliance period for RGGI ran from January 1, 2009 through December 31, 2011 and regulated generators had until this month to prove that they had purchased enough allowances to cover the tons of CO2 they emitted during that period. The RGGI states plan to release more information about such compliance in June. RGGI's second compliance period began on January 1 and runs through the end of 2014.
One of the big changes between the 2011 and 2012 auctions is that at last year's auctions, a small offering of 2012-2014 vintage allowances were also offered for sale in a parallel auction. RGGI announced in January that they would discontinue this practice for the upcoming auctions.
This change may be as simple as RGGI, Inc.'s response to changes in market demand -- at both the September and December 2011 auctions, no one bid on the future-compliance period allowances. Especially since running two auctions for two sets of allowances increases RGGI's costs, eliminating this parallel auction makes sense. We noted in January that this change could be seen as a statement about RGGI's own view of its future beyond this compliance period's end in 2014, but it also seems likely that it is another way that RGGI can make small adjustments to the cap, while awaiting the official determination by the RGGI member states of what to do with the cap going forward.
Through the future compliance period auctions held in 2009-2011 and last week's auction, RGGI has already sold over 43 million allowances for the 2012-2014 period. This amount is nearly a quarter of the current annual cap, and will likely be an even higher percentage of the eventual cap for 2012, because the cap is expected to be reduced to correspond to decreased emissions in the comprehensive review process currently under way.